Nobel laureate Joseph E. Stiglitz is one of the world’s leading economists. A former chief economist at the World Bank and currently University Professor at the Columbia Business School, he was recently in India to attend an international conference on development and to promote his new book, The Price of Inequality. He spoke to Pranay Sharma about growing inequality in the world and the challenges facing India. Excerpts:

Your coinage, “one per cent versus 99 per cent”, has caught the imagination of different people in the world. What does that reflect?

It reflects a different view of society. The nomenclature, ‘one per cent and ninety nine per cent’, is a way of saying that almost everybody today is in one boat and a few people are in another boat. There is now that huge divide from the very top that is no longer class-based but money-based. So it’s really the redefining of the divisions within our societies.

And this is not specific to the US but something seen all over the world?

That’s correct, it’s all over the world. India has become famous for being the land with the highest per capita of billionaires. This is striking for a country which is average and has a large number of poor people.

“India’s famous for being the land with the highest per capita of billionaires. Striking for an average country with so many poor people.”

Some of your detractors describe you as “the prophet of gloom and doom”. Is that a correct assessment?

I had accurately perceived the crisis of 2008 and there were those who drew a rosy scenario and did not see it happening. The same people started seeing the ‘green shoots’ in 2009 which again did not happen and we did not get the recovery. Those who are described as ‘gloom and doom’ people are the ones who have predicted, as people jokingly say, five out of the last 10 recessions.

Everybody now talks about the global economic crisis and how it has affected countries across the world, including the US. But are you overstating the case about the US?

The statistics are what they are. The fact that the median income of a full-time worker is lower than what it was in 1968 is part of it. I have gathered some of the statistics that may not have been given sufficient attention by others, but those are facts. The question is, what do you make of those facts? Where the US economy is going is obviously a matter of interpretation. But some of the facts that I think are disturbing may be different from the facts that others are looking at.

What you describe in your book is not only an economic or political failure, but a systemic failure in the US. Is democracy in the US in crisis?

Yes, it is. We have changed the rules of the game to give more weight to money and moneyed interests just at the time when inequality is growing. So we now have an out-of-balance political system.

“There is that huge divide now from the very top that is no longer class-based but money-based...a redefining of divisions within societies.”

You say in your book that if the economic benefits were shared better, Americans would have forgiven many of the ‘sins’ of the US corporates. If that were to happen, then who would have paid the price, people in other countries?

What I was trying to suggest was two-fold. That people in America would not have been so concerned if the top had walked away with just a larger share and did not damage the environment too much. The typical American would have felt that he himself was getting better without asking a lot from the corporation. But part of what is going on in terms of global warming is that the price is being borne by people outside the US. People of America had not paid any attention to that at all.

In India, we have the experience of the Bhopal gas tragedy. An American national responsible for it paid very little compensation and refused to share the burden of guilt. Now we have a debate on ‘nuclear liability’ where the US government and American companies planning to set up N-plants in India are opposed to accepting a larger share of the burden if an accident occurs in any of their plants. How do you react to this?

This is a perfect example of why I say that we have a distorted market economy through politics. Markets don’t exist in a vacuum, we create frameworks. They give money to special interest groups—the one per cent. The nuclear industry is a good example. If the government had not been subsidising them, then in a calamity there would be no one to pick up the tab. They say they have insurance but that is a price no company is willing to pay. We pick up the cost of nuclear exposure, nuclear waste...nobody is willing to pay for that. So there is this massive subsidy given by the government to the nuclear industry.

“We have changed the rules of the game to give more weight to moneyed interests, just at the time when inequality is growing.”

So you think US companies planning to set up N-plants here should share a larger burden of that liability?

They should bear it all. In the global context, they don’t bear that in the US either. The nuclear industry exists only because of government subsidies. But subsidy in the form of liability; the oil industry is also protected in the same way. They have a law that limits the liability in the event of a spillover. If you look at the way the legal system is designed, many of those who are injured by the spill will never be compensated.

You have praised governments in China and India for intervening in the market to make globalisation work better for their respective people. How do you now see the performance of the two countries?

China represents what is the success of globalisation, where over 400 million people moved out of poverty. The gap between their income and that of people in the US has reduced enormously. Same is perhaps also true for India. But when you have rising aspirations in a country like China—which has been slow in implementing good working conditions—it can lead to agitations by workers.

What about India?

India has not grown as fast as China but it is growing significantly. There have been very significant successes, though there hasn’t been much reduction in poverty in a big way.

“US firms planning to set up N-plants should bear all the liability. But they don’t do that even in the US, state ‘subsidies’ protect them.”

PM Manmohan Singh announced a clutch of economic reforms recently, particularly in regard to allowing FDI in multi-brand retail. Do you think India needs to open up its market?

India is an unusual country and different from many other developing and emerging markets. It has a large entrepreneurial class and has lots of savings, wealth. And this entrepreneurial class is very talented. So that raises the question as to why India needs foreign entrepreneurs in any sector, particularly the retail or the financial sectors.

And what’s your answer to that?

I have not seen a good explanation yet. To me, as most economists say, a little competition is good. On the other hand, the worry is that a company like Walmart may owe some of their success to its power and ability to drive down prices. Because they can buy things out and if that’s the case then they will use that power to have Chinese goods displace Indian goods. The real harm will not be to the retail sector. That is not the real problem. The harm will be to the Indian supply chain going into the retail sector. The other concern is that Walmart has succeeded in expanding its business by adopting abusive labour relations.

“India has a large, talented entrepreneurial class, and lots of savings and wealth.
Why should it need foreign entrepreneurs in any sector?”

Is that the experience of other countries where it has a presence?

That is the experience of other countries. It is a business practice that you don’t want to import to your country. Bribery in Mexico, free-riding on healthcare, a policy against unionisation, discrimination against women—a whole range of accusations, some of which have been proved and others that remain accusations but are hard to win in courts. Why would you want to import such business practices into India? Many economists see the breakdown in social contract as one of the reasons for inequality. There is also a worry that Walmart will break down the social contract in India that is already frail.

So how does one go about it?

The other reply to these concerns is for India to have legislations to ensure these problems don’t happen. You should have good protection from large multinationals.

Does President Obama have a shot at being re-elected?

I think he has a good chance. I think he has been more successful than what his critics say but far less successful than the expectations when he was elected in 2008. The reality is, if the Republicans do well in Congress then it will be a more defensive (move) to prevent things from getting worse. But also not allowing changes that’ll make the economy work.

“Corruption scandals have a resonance as people know the power of money. Money begets money and it begets via the political process.”

When you look at India what are the areas of concerns?

One of the things would be the huge inequality which is still there. It is very serious and it cannot be ignored. The existence of extreme wealth and extreme poverty, they are worse than many other countries.

Do you see the government intervening to tame the market?

I don’t see it that much...when you have so much of economic inequality, there is always the fear that political power will corrupt the government. A lot of the corruption scandals have a resonance because people understand the power of money. They know money begets money and it begets through the political process. It may be difficult to ascertain what happened in the coal block allocations. But these are people’s assets which have surely not been sold in efficient, transparent auctions that could raise the most money for the well-being of everyone in society. And that has a real resonance in a society that already has such inequality.

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I read the interview with Joseph Stiglitz (‘Why should you import the Walmart culture?’, Oct 29) with interest. I don’t agree with him, though I don’t dispute his vast knowledge on economic affairs. As a common man, I can say this development will ultimately benefit the country. Contrary to what Stiglitz says, the entry of global retail giants will see new investments and will add to the country’s GDP. The China example would not hold true for India. One just needs to ask—has the advent of malls hit the kirana stores? Not at all. In fact, the kirana shops have started offering similar discounts, and most customers still prefer to buy from them! And farmers would get 20 per cent more for their farm produce due to supply chain logistics. About three million direct employment opportunities will also be generated, with an additional four million jobs in security, housekeeping, logistics and contract labour.

Rajiv Boolchand Jain, New Delhi

Well, Paul Krugman, Dean Baker and others have raised/debated the same issues, but, ultimately, money trumps everything. Talking about nuclear power specifically, I know India has been working with Russia and France (Areva) for the new generation of reactors, but I have never grasped the underlying economics of it. Areva plants being commissioned in Europe are costing upwards of $5 billion. My question is, would a private company ever be able to bring up and run a profitable nuclear power plant without any subsidies?

Hitesh Brahmbhatt, San Diego, US

As economists are well aware, Stiglitz’s views are quite controversial in the US and many (if not most) economists will dispute what he has to say. The thing is that economists with reliably left-wing views have a higher chance of winning the Nobel for economics. Jagdish Bhagwati of Columbia University is also a great trade economist, but has not won the prize only because he is not left-wing.

Sinchan Mitra, Chicago

Unlike in the US, socialism still finds great acceptance in India, more so among generations born before the ’90s, because since independence, Indians have been taught to believe in the paradise of the socialist state. The net result of six decades of socialist policy is that we have grown to resignedly accept bloated, inefficient cabinets, and ‘mai-baap sarkars’ that benefit netas. We also take for granted infrastructure that was budgeted for but never completed, pathetic public services in healthcare, banking and education despite massive employee wage costs in all those areas, bribes for government employees for doing regular jobs, and social programmes for the poor that don’t reach their targets.

Dipto, New York

It is amazing how Stiglitz has jotted down the facts of India’s economic progress, which made the rich richer and left the poor at the same level. I respect his views on the state of reforms in India; let’s hope this new batch of reforms bring in the required progress the leaders hope for.

"The issue is that economists with reliably left-wing views will have a much higher chance of winning the Nobel prize. Jagdish Bhagwati .... But he never wins the Nobel prize because he is not left-wing. Paul Krugman ... wins the Nobel because he has strongly criticized Republicans and is aggressively left-wing (in American terms)." -

So writes Mitra from Chicago - the hub of the World of Economics (equivalent of Silicon Valley for Modern Electronics ????).

Let us refer to the period of REGANOMICS as the Europeans used to say about that real right-wing era in the so-called "free world" ushered by Milton Friedman. Wiki writes about that history focusing on him as follows:

"Friedman was an economic adviser to Republican U.S. President Ronald Reagan. His political philosophy extolled the virtues of a free market economic system with minimal intervention. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment, and his support for school choice led him to found The Friedman Foundation for Educational Choice. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers.[10] His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s. His monetary theory influenced the Federal Reserve's response to the 2007–2012 global financial crisis."

And he won the Nobel Prize in Economics !

I am glad that Manish has picked up the faux pas.....

By the way, the US can print more money as they wish, but no other country in the Western World can do the same since the oil price - and trade in oil - is fixed in terms of the US Dollar - no other currency is valid. So runs the free market under the US control of Middle Eastern Oil.

(1) The interview is very much thought provoking. (2) His points about unfair practices of Walmart are a major concern for all citizens. When citizens are demanding FDI in retail, their expectation is that the retail trade in India be compelled to revamp its business strategies to cope with competition from more efficient retail traders. One major concern about existing retail trade in India is that it has never made any serious efforts to cut costs of distribution. The middlemen earn more than they deserve and have not been challenged. (3) As regards growing income and wealth inequalities in India, blame has to be shared equally by the political class, by the governments for non-implementation of necessary reforms, by public sector business undertakings for failure to properly utilize the huge capital invested therein and the business community which has not freed itself of feudal thinking.

In America calling someone a "socialist" or a "communist" would be considered a derogatory remark, because Americans by and large associate socialism with all the evil. In India socialism still finds wide acceptance, more so among those born before 1990s ( including all politicians across party lines), because since independence Indians have been taught or brainwashed to think about only the paradise of an ideal socialist state. In public lives we accepted overwhelming presence of government everywhere hoping for the support of a mai baap government , although it only helped netas of all political colors, jumbo cabinet of ministers, babus and sarkari employees and their vested interests. In private lives we also took for granted the lack of infrastructure that was budgeted but never provided, pathetic services in healthcare, banking and education despite huge employee costs run them, the bribes and influence to government officials only to do their jobs for which they earn government salaries, the social programs for the poor that do not reach them. We also learned to hate all the businessmen and industrialists because the rich are supposed to be all evil, no matter if they create jobs for an overpopulous nation. We only demanded the distribution of wealth without caring who created them. And our intellectuals continued to dish out the same ideas of trashing creators of capital and seeking even more intervention from a government that has already proved to be incompetent, inefficient, often corrupt and mostly self serving.

Since we choose leaders who are in their 70s and eighties, call politicians young when they are past 40, and take comfort in the dynastic change of leadership in every political party it will be difficult to get rid of our socialism -loving DNA in the near future. Perhaps when half of the Indian population who were born after 1990s and do not carry the baggage of socialism turn more mature and take up political and thought leadership, we could bury the ghost of socialism. Until that happens , our skepticism and conspiracy theories will continue to trash capitalists and glorify the government.

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